PFI Assurance Issue:

4. Affordability (and whole life costs)

…to provide assurance that the PFI contract will be (or continues to be) achievable where the project/programme whole life cost estimates are comprehensive, robust, accurate, valid, have been benchmarked, independently certified or obtained in competition, make appropriate allowance for risk, and are affordable against the agreed budget. 19

Commercial/Financial Assurance Guide Ref:

DE&S Finance Instruction: 06/08, "Through Life Financial Assurance": 2. Affordability & 4. Estimates

Relevant MOD policy/guidance used as measure for assurance:

Relevant external policy/guidance used as measure for assurance:

• MOD PFU Guidance Note - Assessing Value for Money for PFI Projects

• JSP 507

• Resource Accounting Bulletins (e.g. RAB 472/462 & RATb13)

• Departmental budgeting guidance

• Departmental plans

• [MOD Guidance Note - Tips on using estimates, assumptions & cost inputs when analysing affordability & vfm of PFI projects]20

• International Accounting standards (e.g. IFRS and/or ESA95)

• OGC Achieving Excellence Guide 7 - Whole-Life costing

• HMT Value for Money Assessment Guidance, dated Nov 2006

Evidence Required for each Procurement Phase

All phases:

• Indicative costs, e.g. reference or should cost model

• Affordability analysis (including modelling various payment mechanism scenarios including updated inflation assumptions)

• Quantitative cost risk analysis and optimism bias, evidenced with appropriate historical trend analysis.

• Master Data Assumption List (MDAL)

Up to Initial Gate:

Up to Market Engagement:

Up to close dialogue and Preferred Bidder appointment:

Up to Main Gate:

Up to Contract Award:

Post Contract Award:

• Project Funding Responsibility Matrix (PFRM)

• Confirmation from appropriate authority of tax (incl VAT) & accounting treatments

• Confirmation from the acquisition team and its financial advisors that the project is affordable in CDEL/RDEL in total and profile

• Balance Sheet treatment paper

• Bidder's/Contractor's financial model(s) & cost analysis

• ITN/ITT (instructions to bidders)

• Bidder's/Contractor's financial model(s) & cost analysis

• Bidder's/Contractor's financial model(s) & cost analysis

• Financial model audit report